Source: nbaa.org, Editor, First Published Aug 13th, 2025
With all the discussion of the potential pitfalls of dry leasing in business aviation, it’s also important to remember the benefits dry leasing offers.
For lessees, dry leasing can allow them to enjoy the pluses of operating an aircraft without the added ownership responsibilities. The benefits include operational flexibility, cost savings and reduced capital expenditure. For aircraft owners, dry leases offer a way to reduce the costs of ownership and utilization by allowing them to offer their aircraft to operators without providing crew or maintenance.
“A dry lease is a method that affords you the ability to have appropriate shared use on an aircraft and still be able to operate under Part 91, as opposed to a wet lease, which typically is going to trigger the requirement to do a Part 135 (charter) operation,” said David Norton, an attorney with Shackelford, McKinley & Norton LLP, who was the first chair of NBAA’s Domestic Operations Committee and currently serves on the Tax Committee and the Regulatory Issues Advisory Group (RIAG).
As an Example, Norton Offers the Following Scenario:
“I have three businesses or three individuals that all would love to fly around in a $3 million airplane, but they only want to spend a million bucks a piece and use the airplane,” he explained. “Well, I can put the airplane in a holding company that is formed by those three individuals, and then I can dry lease the aircraft out of the holding company.”
Via the dry lease, these three individuals or their companies assume responsibility for their respective operation of the aircraft, including staffing, maintenance, scheduling and more. “So, they’re on the hook to the FAA and the civil courts when they’re flying the airplane.”
In short, a dry lease is used to transfer possession and control of an aircraft used for flights from an owner to another operator.
“They’re also used for FAA compliance purposes, as well as for tax and other regulatory purposes,” said Joanne Barbera, an attorney and founding partner with Barbera & Watkins LLC. “We see them used for everything from a local FBO renting aircraft for pilot training, or for a pilot to fly an aircraft for that pilot’s own use, to a big company setting up a single-purpose entity to own an aircraft and transferring the operational control of that aircraft to the proper operating company.”
5 Benefits of Business Aircraft Dry Leasing
Fractional aircraft programs also typically include dry leases between fractional owners, said Barbera, who also serves as vice chair of NBAA’s RIAG and past chair of the tax committee.
Potential reasons to consider dry leasing include:
- Operational flexibility: Dry leases allow the lessee to manage all aspects of the aircraft’s operation, including crew, maintenance and scheduling, providing greater control and tailoring to their needs.
- Cost savings: By managing operations in-house, lessees can potentially reduce crew costs, maintenance expenses and insurance premiums.
- Reduced capital expenditure: Dry leases offer a more affordable alternative to purchasing an aircraft, allowing businesses to allocate capital to other areas.
- Longer-term solutions: Dry leases typically are longer-term, providing lessee’s a stable solution for fleet expansion or replacing aircraft without the high upfront costs of purchasing.
- Compliance with regulations: Dry leases, when structured correctly, can allow operators to operate under Part 91, which is the general operating rule for non-commercial aviation.
Tax benefits: In some cases, dry leases may offer tax advantages, such as avoiding federal excise tax on lease payments.
Business Aviation Tax Expert: This Factor Is Imperative
If a dry lease is not set up properly, it’s easy to run afoul of the FAA, which in recent years has increased monitoring of dry leases, especially targeting so-called sham dry leases where the lessor provides crew or services outside the legal scope of the agreement, thus implementing a wet lease.
So, it’s imperative that the lessor has no operational control during the lessee’s use of the aircraft under the dry lease. In addition, dry leases should be in writing, and must be for large aircraft, according to Barbera, who said insurance requirements also must be considered.
“From an insurance standpoint, you want to make sure that the lease is covered under the insurance policy and that probably means talking with your insurance broker about it,” Barbera said. “Additionally, a lease is a transfer of possession of an aircraft, which has tax implications. So, from a state sales-and-use-tax standpoint, the leasing may be subject to sales tax, and it has potential federal tax implications as well.”
Also, lessors should be careful about considering dry leasing a “money-making” opportunity, said Norton.
“If you’re setting something up where you’re thinking you’re going to dry lease it and make money to mitigate costs, especially if you start doing a lot of third-party dry leasing…even if theoretically it looks like you’re crossing t’s and dotting i’s, at some point you may have now entered into the regime of holding the aircraft out to the public. Once you do that, you become a charter operator again.”
Four Essential Tips to Manage Dry Lease Risk
Given the complexities of dry leasing, Norton offered these tips to help owners and operators manage the risk:
- Hire a qualified aviation attorney who intimately understands the regulations of dry leasing to set up a structure that will pass regulatory muster.
- Conduct the due diligence that’s required of a non-commercial operator. “If you’re going to use a management company, check them out, especially if they are hiring pilots,” Norton advised. “Take that extra step to confirm that their pilots are current and are doing what they’re supposed to do.”
- Buy as much insurance as you can afford to cover passengers, pilots and crew. “If you are flying yourself, and it’s just you and maybe your family members, there’s really very little liability,” Norton said. “Conversely, if you like to load up the airplane with all of your super high-net-worth individual friends, you better have a really robust liability policy that covers everyone.”
Hire a qualified aviation attorney to set up a legal structure. “Because everybody in this industry is very fearful that at some point somebody’s going to have an insurance policy that appears to be correct, and then they go out and they don’t use a proper structure,” said Norton. “And, if there’s a crash, and the FAA determines that it was an illegal charter with a whole bunch of regulatory violations, the insurance company could walk away from the claim.”
